Development Economics ECON 4915 Lecture 13

1. DevelopmentEconomicsECON 4915 Lecture 13 Andreas Kotsadam

2. Last lecture • Feedback is muchappreciated. • Talk tome or the classcritics. • E-mail me (caneven be anonymouslyofcourse). • For instance, ifyoucouldchangeonelecture, whatwouldyou do. Whattopic has been the leastinteresting etc.?

3. Outline • The reading list. • Recap on institutions and the slave trade. • Country level and locallevel institutions (Michalopoulos and Papaioannou2011). • Exam, recap, recap, and recap.

4. Institutions and developmentrecap • Acemoglu et al. (2001) arguethat national level institutions arekey for long term development. • They test the idea by using potential settlermortality as an instrument.

5. Identification Strategy and argument

6. Glaeseret al. 2004 • Offer a forcefulcritique on several fronts. • Theyarguethat the measuresof institutions are bad. • And theyarguethat the instrument used in Acemoglu et al. is bad (settlermortality is not correlatedwithobjectivemeasuresof institutions and the instrument is not valid).

7. Human capital Critique from Glaeser et al

8. Nunn and Wantchekon (2011) • Historical events may be propagated by changedculture. • Exampleof the effectsof the slavetrade. • In fact, Nunnargues in another paper (2012) that the results in Glaeser er al. and Acemoglu et al. can be understood via culture: ”Rather than being two competing explanations for long-term growth, they are both part of the same evolutionary process. The confusion arises from the fact that neither paper acknowledges the role culture plays in shaping domestic institutions.”

9. Michalopoulos and Papaioannou 2011 • Research question: Do institutions matter and which ones? • Interesting? Yes, THE QUESTION in development. • Original? Yes, using nighttime light and detailed geographic information allows them to ask new questions. • Feasible? Yes, by collecting innovative data and using RD.

10. Main argument • Whilemanyarguethat national institutions arekey, theydownplay the roleof pre-colonialethnic-specific institutions. • Theselocal institutions areparticularlyimportant in developingcountriespreciselybecauseoflimitedstatecapacity.

11. Twoquestions • Do current nationwide institutions affect economic performance across regions once we account for ethnicity-specific traits, culture, and geography? • Do pre-colonial institutional ethnic characteristics correlate with regional development once we consider country-specific attributes?

12. Innovations • Use a map portraying the spatial distribution of ethnicities. • Combine with data on the economy, institutions, and cultural traits of ethnic groups around colonization. • Measure regional economic development at the ethnicity-country level using satellite images of light density at night which are available at a fine level of aggregation.

14. The bordersofAfricaweredrawn by these idiots at the Berlin Conference

15. Arguments for using the borders as an experiment • At the timeofdrawing the borders, the colonizershad not evenexploredmostofAfrica. • No ethnicity-specificmeasurescanpredictwhichethnicitiesbecamepartitioned. • There has beenveryfewchanges in borderssinceindependence. • Compareeconomicperformancein regions belonging to the historical homeland of the same ethnic group, but subject to different contemporary national institutions.

16. Same ethnicgroup in different countries.

17. Satellite light density at night • The studyrequiresdetailed data on economicdevelopment at the locallevel. • In addition thereare problems evenwith cross national data, e.g. GDP (measurement; unavailability; shadow economy). • Satellite Light Density: available at every sq. km. • Strongly correlated with income and public goods provision.

18. Examples ofwhat the data cantellus • If youfindthisinteresting, see Henderson et al. (2012) ”MeasuringEconomicgrowth from outer space”. • Opensup a widearrayofpossiblequestions.

19. Global view

20. Growth on the Korean peninsula

21. Effectsof the Asianfinancialcrisis

22. Effectsof the Rwandangenocide

23. More data stuff • Theyuse the Ethnographic Atlas (Murdock 1967) whichincludesvariablessuch as cropuse, marriagepatterns, local institutions etc. at the ethnicitylevelbeforecolonialization. • Focus on the variable: Jurisdictional Hierarchy above the Local Community Level

25. Empiricalspecification

27. Theyalsoexploit the borders • Theyuse the factthat the changes in the qualityof national institutions jumpsdiscontinuously at the border. • Across the borders, geography, naturalresources, diseases etc. is equalbut national institutions are not. • They check that the resultsare not driven by migration.

28. Recap Regression Discontinuity

30. Same ethnicgroup in different countries.

31. ”The underlying idea is that by comparing regional development in the historical homeland of the same ethnicity exactly at the border, where only the quality of national institutions differs, one accounts for all characteristics that may affect regional development.” • Again, theyfind no indicationofmoredevelopment in areas withbetter national institutions.

32. Summary so far • “The analysis uncovers that differences in economic performance within ethnic groups partitioned across different countries cannot be explained by countrywide differences in institutional quality. While this result does not necessarily generalize to areas far from the national borders or other parts of the world, it casts doubt on the causal interpretation of the cross-country positive correlation between institutional quality and economic development in Africa.”

33. What about the pre-colonial institutions? • Theyfind a robust correlationbetweenethnic pre-colonial institutions (political centralization) and contemporary regional development. • “Since we do not have random assignment on ethnic institutions, this correlation does not necessarily imply causation.” • But it is robust to control for geography at a fine level, country characteristics, and other ethnic traits.

34. Recap and exam questions

35. About the exam • Can be written in Norwegianifyoudefinitelywantto. I do not like this, however: More identifiable and creates problems in correcting the exam. • Time will be very scarce: Keep the answers concise and relevant. Points may be deducted for irrelevant passages.

36. Examquestions on empiricalpapers • The questionsaskedand the possibletheoreticalmechanisms. • The empiricalstrategies and internal validity. • The mainresults, mechanisms, and external validity.

37. Examquestions on bookchapters and theoreticalpapers • Given all relevant information youshould be abletoreproducesimplemodels and graphs. • Youshouldknow the relevanceof the models (i.e. what do theypredict and do the predictions play out in real life, do theypointtoimportantmechanisms etc.?)

38. Examquestions on overviewpapers • Thesepapersareoftenbuiltuparoundquestions and youshouldknow the idea, arguments, and empiricalevidence. • Examplels; van der Ploug (argumentsand evidence for the resource curse), B&D (arguments and evidence for microfinance), O&P (arguments, measurement, and evidence for corruption) Duflo (arguments and evidence for the relation between development and gender equality).

39. Recap. Possibleexamquestion • Duflo (2011) goes through the relationship betweenwomen’sempowermentand economicdevelopment. Whatare the possible arguments for the relationship. In particular, doesdevelopment cause empowerment and does empowerment cause development?

40. Does development cause empowerment? • Common arguments: • Reduces discrimination. • Frees upwomen’stime. • Changes expectations. • Technologicalchanges (maternalhealth, washingmachines etc.).

41. Discrimination under extremecircumstances • Girls are treated differently when ill, e.g. more than twice as likely to die of diarrhea in India. • The excessive mortality rate of girls, relative to boys, spikes during droughts. • When the harvest is bad, due to droughts or floods, and food is scarce, the murder of “witches” is twice as likely to occur as in normal years in rural Tanzania.

42. Policy implications • General interventions toreducepovertymayhelpwomenmore. • Access tohealth services (healthinsurance or freemedicalcare). • Weatherinsurance and credit.

43. Summary of general development • Economic development reduces inequality by relaxing the constraints poor households face, thus reducing the frequency at which they are placed in the position to make life or death choices. • By reducing the vulnerability of poor households to risk, economic development, even without specifically targeting women, disproportionately improves their well-being.

44. Expanding women’s opportunities • Parents have lower aspirations for their daughters than for their sons due to women’s fewer opportunities.

45. Buteconomicgrowthis not enough • Sex ratios in China worsened despite growth. • Women earn less than men in all countries. • Legal rights are still worse for women and does not seem to follow economic development. • Huge gender gap in political participation and power.

46. Other crucial aspects • Implicit biases (SeeBeaman et al). • Stereotype threats. • Attitudestoward risk and competition. • Informalcare. • Rigid powerstructures.

47. Does empowerment cause development? • Commonarguments: • Effectsoffemaleeducation. • Effectsoffemaledecisionmaking in thehh. • Productivity effects in agriculture. • Effectsoffemalepoliticalleaders.

48. The effectsofquotas • Beaman et al. 2009. • What do I wantyoutotakewithyou from this long paper? • The question and the possibletheoreticalmechanisms. • The empiricalstrategies and internal validity. • The mainresults and external validity.

49. Shouldweexpectquotastochange norms in women´sfavor? • No, peoplemaydislikequotas as voter choice becomeslimited. • No, as quotasmayviolate gender norms aboutwhatwomenshould do. • Yes, if it provides information to risk averseindividuals. • Yes, if it changes perceptions aboutwhat men and womenshould do.

50. Empirical strategies • Firstof all theyexploitrandom variation in quotas for femaleleaders in India. • Since 1993 1/3 of all councilor positions and 1/3 of all chiefs (pradhan) must be women. • These reservations wererandomlyallocated so identification is straightforward.